The Competition and Markets Authority will force payday lenders to publish clear product details on at least one FCA-regulated price comparison website to ensure borrowers are getting the best deals.
In its final report on the payday lending industry, published today, the CMA says authorised comparison websites must have “clear, objective and comparable information on all potential loan costs”.
The regulator expects “one or more” commercial price comparison websites will apply for authorisation, but failing that lenders will be obliged to set up an FCA-regulated comparison site for payday loans.
The CMA says a lack of price competition in the payday loans sector has lead to higher borrowing costs, with few borrowers shopping around due to the difficulties in accessing comparable information between lenders.
The CMA also recommends that lead generator sites – which collect consumer information before selling them on to lenders and through which 40 per cent of first-time online borrowers access loans – must explain their function more clearly to consumers.
The CMA also warns many borrowers are unaware that such websites are acting as intermediaries as opposed to being lenders themselves.
Finally, the CMA will order all payday lenders to provide customers with a summary of their borrowing costs, including the total cost of their most recent loan as well as the cumulative cost of their borrowing with that lender over the previous 12 months. Lenders must also illustrate how late repayment fees have affected the cost of borrowing.
CMA Payday Lending Investigation Group chairman Simon Polito says: “We are requiring lenders to be listed on price comparison websites authorised by the FCA and have recommended to the FCA that these websites should carry all the information customers need to compare easily the total cost of different lenders’ loans.
“This will promote competition and provide the incentive for new and existing lenders to compete to offer lower cost loans and win borrowers’ business. It will also make it easier for new entrants that offer lower cost loans to access customers.”
The CMA will publish an order within six months putting in place its requirements in relation to price comparison websites and borrowing summaries. The FCA will then consult on measures to be introduced in response to the recommendations.
Money Advice Trust chief executive Joanna Elson says: “These improvements in the way that payday loans are regulated must not dilute the core message that payday lending remains an extremely expensive way to borrow.
”Anyone who finds themselves turning to high cost credit to make ends meet would be far better served by seeking free debt advice, to resolve the underlying causes of their financial difficulty, instead.”